US markets nervous ahead of Fed minutes, UK stocks push ahead and AO World guides for earnings at top end of expectations

“Markets get jittery whenever the Federal Reserve is due to speak or issue important information,” says Russ Mould, Investment Director at AJ Bell.

“With the central bank set to publish the minutes from its November meeting tomorrow, equity investors need to brace themselves for the Fed to say it is likely to keep raising rates to tame inflation, even though October’s consumer prices figure was below expectations.

“Investors may have got carried away by the recent inflation surprise which triggered a rally in stocks around the world. Tomorrow could feel like a bucket of cold water has been poured on this rally.

“The Nasdaq fell 1.1% last night while the S&P 500 reversed 0.4%. It might take a dovish surprise in the Fed minutes for markets to pick up again and that seems highly unlikely given recent hawkish comments from James Bullard, president of the St Louis branch of the Federal Reserve. Last week he said the Fed’s main policy rate could increase to between 5% and 5.25%, which is above many people’s expectations.

“While US stocks were looking fragile ahead of this event, the FTSE 100 pushed ahead thanks to strength in energy and mining stocks. Brent crude jumped nearly 1% to $88.44 per barrel, prompting investors to pile into oil producers.

“Metal producers bounced back after yesterday’s slump caused by a new Covid outbreak in China, which caused investors to worry that would translate into reduced commodities demand. That concern is still valid and markets will be closely watching how China deals with this latest flare-up in Covid.”

AO World

“First-half results from online electronics retailer AO World are being released in the calm before the storm which is Black Friday and Cyber Monday when the company will hope to be extremely busy.

“AO World was a pandemic winner whose fortunes have taken an alarming turn since, but these results hint that the company may have bottomed out and is ready to recover.

“The backdrop is undoubtedly difficult. Given the pressures on household budgets, people are putting off purchases of new appliances where they can, though to some extent if your washing machine or fridge freezer breaks down, a replacement is a non-discretionary item.

“This set of numbers from AO World is as messy as the bottom of a student’s fridge, but management guidance is notably robust, with full-year earnings expected at the top end of expectations. Though it’s important to note this is largely being driven by cost cutting, rather than any inherent strength in the business.

“One area where AO World has done a decent job is protecting margins and it still has a strong competitive position. With the German assets sold off, it can now look to build on its large share of the UK market.

“In a sign the company is moving past a period of retrenchment, AO World is also looking to expand in categories like TVs and laptops.”

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